INTERNATIONAL MARKETING MANAGEMENT
ARIZONA STATE UNIVERSITY
OMT 440 - INTERNATIONAL BUSINESS
SPRING 2024 - WEEK 3
LEARNING OBJECTIVES:
1.
Explain why there is a difference between domestic and international marketing
2.
Discuss why international marketing managers may want to standardize the marketing
mix
3.
Explain why global standardization of the marketing mix is often not possible.
4.
Explain why consumer products generally require greater modifications for international
sales than industrial products or services.
5.
Discuss the product strategy that can be formed from three product alternatives and three
kinds of promotional messages.
6.
Describe the “global” advertising strategy
INTRODUCTION:
THE DIFFERENCE BETWEEN DOMESTIC MARKETING MANAGEMENT AND
INTERNATIONAL MARKETING
In marketing activities, it is necessary to recognize that marketing to different
environments, including different countries, will require different activities. Although the
differences themselves are not the same for each country, some are not so different from
domestic marketing, some are very different.
Markets differ due to differences in the external environment of the business, both the
general external environment, as well as the general external environment the external
environment of the industry and the competitive environment. The task of marketing
managers is more complicated in international marketing, because in addition to the
environmental factors themselves being different, the number of environments to be faced is
also different. Domestic marketing faces a market with domestic external environment and
international environmental factors, while international marketing faces a market with
domestic external environment, overseas external environment, and international
environment. In addition, the internal factors of the company itself are also likely to be
different in the home country from the internal environmental factors in the target market
country. In addition to the complexity of different environments, international marketing
managers have the additional task of dealing with marketing strategies that may vary in each
target market country, requiring coordination and integration of all strategies and activities.
Domestic or international marketing managers actually have to perform activities that
are generally not different, namely the need to know their market and decide on the
marketing mix. Marketing mix decisions include developing products to meet market needs,
pricing products to be acceptable to consumers, preparing products to be available to buyers
when needed, and informing consumers about products and getting them to buy them. Market
introduction is no different from domestic market introduction, other than the decisions that
marketing management needs to make for the marketing mix.
FUNCTIONAL MANAGEMENT OF INTERNATIONAL MARKETING
The competitive strategy at the international business division level is determined by
the international division manager at the corporate headquarters. Based on the need for global
integration and the need to adapt to local characteristics, there are several competitive
strategy options: 1. Global strategy,
2. Home country replication strategy, 3. Transnational strategy, and 4.
4. Multidomestic strategy. Functional management in each target market country needs to be
aligned with this strategy. This means that the strategy of each marketing mix must also be
whichever competitive strategy has been adopted at headquarters.
A standardization strategy means that the company will decide on the same formulation
of each marketing mix in each country. A follow-the-country competitive strategy means that
the formulation of each marketing mix will be the same as in the country of origin.
Adaptation competitive strategy means that the formulation of each marketing mix is adjusted
to the characteristics in each country of the target market. A transnational competitive
strategy means that the formulation of the marketing mix strategy must also be standardized
and at the same time adapted to local characteristics.
Each competitive strategy, namely standardization strategy, adaptation strategy, follow-
the-country strategy, or transnational strategy, has beneficial and detrimental effects on the
company. The international division at the head office should have considered the advantages
and disadvantages of each strategy in its international business, so that it has made a strategic
decision that is considered the most appropriate.
In general, the standardization strategy is most beneficial to the company compared to
other competitive strategy alternatives. This is because standardizing each marketing mix will
provide lower costs, easier control and coordination, and less time needed to prepare
marketing plans in each target market country. However, this is not easy in practice, so in this
chapter the discussion of international marketing management is limited to what factors
hinder standardization, and how to solve them.
PRODUCTS
TOTAL PRODUCTS:
The total product is what the consumer buys, including the physical product, brand,
accessories, packaging, after-sales service, warranty, user manual, company image, and
packaging. With this understanding, product adaptation does not necessarily have to change
the physical product. Changes to the brand, accessories, warranty, after-sales service,
packaging, labels, user manuals are often more than enough for product adaptation to local
conditions.
PRODUCT TYPE:
The number of changes required in a product depends on the type of product. Products
can be categorized as: consumer products, industrial products and services.
Industrial products generally do not require adaptation due to different markets or
different countries. When adaptation is required, the changes that need to be made are usually
relatively straightforward, such as lengthening or shortening the size or changing the colors to
meet consumer tastes. For certain markets, however, it is often necessary to make quite
drastic changes to the physical product. For example, in developing countries there is a
tendency for machines to be overused, or to be undisciplined in keeping up with maintenance
schedules. To address this, companies may need to provide technical training as part of the
purchase. Alternatively, if possible, use components that are more durable and do not require
frequent maintenance. Adaptations may also be required to meet local legal requirements.
Consumer products generally require more modifications to meet local market
demands. However, some products can be sold without any changes, especially if the product
does not need to be changed for a particular market segment that has the same characteristics
as other markets.
In each country there are always market segments that are similar to the same segments
in other countries in terms of economic status, behavior, taste, and preferences than to other
segments in the same country. For example, the segment of those who are highly educated
abroad and frequently travel abroad. This segment is already familiar with consumer products
available in developed countries.
In general, market segments with lower social strata tend to require considerable
adaptation. For example, when fried chicken products from the USA were introduced to
Indonesia, the market response was not encouraging. After enough product modifications
were made, including replacing bread with rice, omitting potato mash, coleslaw, and giving
away free ketchup and chili sauce, the number of fried chicken outlets soon jumped into the
thousands.
Services are similar to industrial products in that they are easier to standardize. For
example, accounting firm services, fitness services, etc. can be offered the same in different
countries. However, laws and customs may demand changes in the services offered.
Accounting systems in different countries vary, but global accounting firms successfully
operate in many countries, and need little adaptation.
ENVIRONMENTAL FACTORS THAT LIMIT PRODUCT STANDARDIZATION
STRATEGIES:
The legal factor is a factor that greatly limits the product standardization strategy. This
is because the laws in each country are different, so products that have met the legal
requirements in the country of origin, do not necessarily also meet the legal rules in the target
market country. This is because the regulations may be different, or because there may be no
such regulations in the importing country. For example, Indonesia was given the highest
quota for cassava exports to the USA, but was never able to fulfill the quota. This is because
the quality of Indonesia's cassava does not meet the quality standards for cassava that are
acceptable in the USA, namely the maximum allowable moisture content. In Indonesia, there
is no legal provision that determines the quality standard of cassava in terms of moisture
content. Another example is that the export of Indonesian instant noodles was once banned in
Taiwan. Taiwan's Ministry of Health found that many of the Indonesian instant noodles
circulating in Taiwan contained E218 preservative in Taiwan is only permitted for use in
cosmetics and beauty products, not for food. The Indonesian Food and Drug Administration
(BPOM) states that in Indonesia there is no prohibition on the use of E218 for food products.
So this case shows that the legal provisions governing the same product are different between
Indonesia and Taiwan. In Indonesia it is legal, in Taiwan it is not. Legal factors that can
impact product standardization strategies include: laws governing pollution, consumer
protection, labor safety, on the import of goods, those governing food and drugs, on branding,
the requirement of production in the target country, or using domestically produced
components, on product standards, patents, copy rights, those governing labels, packaging
and so on.
Sociocultural factors are another dominant factor affecting the implementation of
standardization strategies. Different cultures in different countries often require changes to
the physical product, or other aspects of the product. These sociocultural factors include:
consumer attitudes, language, religion, attitudes towards time, attitudes towards change, level
of education, preferences and habits, purchasing patterns, decision-makers in purchasing, and
so on. An example of a fried chicken franchise from the USA shows that different cultures
demand adaptation of products to suit the desires of Indonesians. USA people view fried
chicken as fast food, meaning that it is only a meal to fill the stomach so that it is not hungry,
while Indonesians view fried chicken as a time for a big meal, so that if it is only
accompanied by a small bun (bun), it means that it has not eaten, Indonesians want it there is
rice and then you eat. Another example is that Indonesians go to super markets not just for
shopping, but for recreation as well. Americans wonder why Indonesians tend to frequent
supermarkets, so when they buy products they don't look for large sizes, whereas Americans
generally travel far to go to the supermarket, so they rarely go to the supermarket. When they
go to the supermarket, they buy large products, so they don't need to go to the supermarket
often.
Economic factors, especially the huge difference in income per capita in the world, are
barriers to product standardization. These economic factors include consumer income, market
size, and infrastructure conditions. Low income per capita means that there is not much to
spend. A large market makes prices increase when supply is limited. Infrastructure factors
play a role in the cost of distributing goods. Many products are considered very expensive to
people from one country, while people in another country consider them very cheap. It is the
large difference in income per capita that makes the difference. A textbook published in the
USA or Europe is considered very expensive in Indonesia, because it costs Rp. 600,000 for a
soft cover edition. The same book with a hard cover and high quality paper is sold in the
USA for US$ 300 or around Rp. 4,300,000. This is understandable because in 2019 the
income per capita of Indonesians was only USD 4,175, while that of the USA was USD
55,810.
Physical factors such as climatic conditions, different topography make it difficult to
standardize products. For example, clothing for a four-season country will obviously be
different from clothing for a four-season country. Indonesia. In Indonesia, the same clothes
can be worn all year round. In a 4-season country, the clothes for spring, summer, fall and
winter must be different. Similarly, topographical conditions will often demand products that
are adaptive to local conditions.
PRICE
PRICE STRATEGY:
Pricing for international markets is complex as it deals with several types of pricing,
namely:
a.
Foreign national pricing, which is a domestic pricing strategy in a country
b.
International pricing, which is a pricing strategy for exported products.
c.
Transfer pricing, a pricing strategy from one subsidiary to another.
In addition, price is not only important to the marketing function, but is also of great
concern to other management functions. The finance function wants prices that are favorable
and conducive to a stable flow of funds. The production function wants prices that increase
sales, so that fixed costs of production can be low, and factory capacity can be fully utilized.
The personnel function wants the price to be high enough so that it can pay employees
satisfactorily tang makes it easy to motivate and maintain employee loyalty.
Price is also closely tied to the rest of the marketing mix, with product decisions,
distribution decisions, and promotion decisions. Marketing managers will take A high price
strategy is used to position the product as high quality, and a low price strategy is used to
penetrate the market. Price also determines the length of distribution channels that can be
used. Low prices affect the intensity of promotion, and vice versa. Promotion will be limited
if a low price strategy is used by the manufacturer.
FACTORS THAT LIMIT THE STANDARDIZATION OF PRICING STRATEGIES
ENVIRONMENTAL FACTORS:
In general, environmental factors limit price standardization strategies. Legal factors
governing pricing may hinder the standardization strategy that the company has adopted.
Such laws include those governing retail prices, controls on the amount of profit allowed,
antitrust, import duties, taxes and government controls on transfer pricing practices.
Sociocultural factors that directly affect product standardization strategies include cultural
rejection of products, low levels of education and income, attitudes towards bargaining,
consumer attitudes towards price. Economic factors that influence price standardization
issues include: prices that are acceptable to consumers, elasticity of demand. Physical factors
that affect product standardization efforts are climate because it may require different
products, topography and infrastructure in a country require extra costs in transportation and
sales costs.
FOREIGN NATIONAL PRICING:
Many governments, especially in developing countries, tend to fix the prices of
products, especially products that are the basic needs of their people. In order to regulate
consumption as well as control scarce foreign exchange, governments often set very high
import duties. Similarly, the determination of minimum wages and regulations on workers
tend to increase production costs, making it difficult for a price standardization strategy. For
essential products, governments often regulate retail prices.
Physical factors, especially topography and infrastructure, often require extra costs for
transportation, so selling costs tend to be high. Different product qualities due to different
climates and topography often make it difficult to standardize prices.
Income per capita also determines the price that a country's consumers can accept and
this is often different from what other countries' consumers can accept. The elasticity of
demand also differs from country to country due to different economic factors.
Consumer attitudes towards price and bargaining culture will differentiate consumer
acceptance of a price, so this will also affect the price standardization pursued by producers.
INTERNATIONAL PRICING:
International pricing is concerned with the price of a product produced in one country
and sold to another. Different environmental factors will affect efforts to standardize prices.
TRANSFER PRICING:
Transfer pricing is the price set by one subsidiary to another. The head office
determines the pricing strategy by trying to maximize profits for the head office, and this may
make one subsidiary profit and another subsidiary loss, and so on. The head office's own
pricing strategy makes it difficult to standardize prices in each of the subsidiary countries. In
this case, it is profit for the head office that matters, not price standardization. Environmental
factors will also affect the price standardization strategy either directly or indirectly.
DISTRIBUTION:
Distribution involves taking products to foreign markets and distributing products
within each of these markets. Distribution strategy includes decisions on distribution channels
and the physical distribution of goods to reach the buyer. These decisions depend on market
characteristics, product characteristics, firm characteristics and intermediary characteristics if
intermediaries are used.
Distribution decisions are often interdependent with other marketing mix variables.
Distribution channel decisions are strategic decisions because once decided, it will not be
easy to change them.
DISTRIBUTION STANDARDIZATION.
While management may be interested in standardizing distribution, it is more difficult
than trying to do so standardization of other marketing mixes. This is because in addition to
the environmental factors that limit a standardized distribution strategy, there is also another
factor, which is the availability of intermediaries. Business activities vary from country to
country, so it is common that for certain businesses there are not the intermediaries that are
commonly used in the home country. This may mean that distribution standardization cannot
be applied in that country if the company uses intermediaries in its marketing in the home
country.
FACTORS THAT LIMIT DISTRIBUTION STANDARDIZATION:
Even if there are enough intermediaries as used in the home country, or even if a
distribution strategy without intermediaries is used in the home country, this does not mean
that there are no barriers to implementing a standardization strategy in the distribution mix.
There are environmental factors that can hinder efforts to standardize distribution. The
environmental factors discussed here are legal factors, sociocultural factors, economic factors
and physical factors.
Legal factors include provisions controlling retail prices, controlling intermediaries'
profit margins, restrictions on members of the distribution channel, laws governing the
relationship between producers and distributors, prohibitions on various types of channels,
value-added tax (sales tax), local taxes. In addition, the government may even interfere with
trade, for example by monopolizing all sales by all producers. For example, in Indonesia,
supermarkets must be located far from traditional markets or small shops.
Sociocultural factors severely limit standardization strategies, e.g. bargaining habits
mean that consumers require small retailers. Differences in attitudes and buying habits also
hinder distribution standardization strategies.
Economic factors such as the availability of retailers suitable for the product, the size of
the retailers which also means the amount of inventory required at each retailer, the extent of
self-service, all determine the feasible distribution channel for a particular country.
Physical factors, namely climate and topography will affect consumer mobility, the
need for the number of retailers and the amount of inventory. Different weather will require
different amounts of inventory. All of these will hinder the distribution standardization
strategy.
PROMOTION
PROMOTION STRATEGY:
Promotion is communication by the producer to the public to ensure a correct
understanding of the products offered by the seller so as to achieve purchasing behavior for
the producer's products with continued confidence. This communication is not limited to the
desired consumers, but also to sales intermediaries and the wider community.
Promotion influences and is influenced by other marketing mix variables. Promotional
strategies can be formulated by combining the alternatives of (1) marketing the same physical
product everywhere, (2) adapting physical products for international markets, and (3)
designing different physical products with a choice of (a) the same message, (b) an adapted
message, and (c) a different message. Promotional strategies that are commonly used and can
be chosen are:
1.
Same product and same message. When sellers face a large market that does not differ
in terms of products and attitudes, they can promote the same products with the same
promotional aspects.
2.
Same product and different messages. When markets are large and do not differ in
terms of products, but differ in their use or where they are used, then sellers can
promote the same product in all markets, but different messages in markets with
different attitudes and views.
3.
Adapted products and the same message. When the product is used for the same
function across markets, but must be adapted for different conditions, the same message
can be used in its promotion.
4.
Adapted products and adapted messages. In some cases, both the product and the
promotional message must be modified for different foreign markets.
5.
Different products and the same message. Many target market countries want different
products, perhaps different in quality but the same in usability. Therefore, the
promotional message can be the same.
6.
Different products for the same use, different messages. Often the products need to be
different in quality and the same in use, but because the quality is different, the
promotional message needs to be different.
The tools to convey these promotional messages, commonly called the promotional
mix, consist of: advertising (advertising), sales promotion (sales promotion), personal selling
(salesperson), public relations (public relations). The exact composition of the promotional
mix depends on the type of product, environmental factors, and the extent of the desired
market penetration.
ADVERTISING:
Advertising is the most similar promotional mix in the world. It is often concluded that
this is because advertising was developed in the USA and American practices and culture are
held in high regard by much of the world. However, there are also many barriers that are
often the subject of discussion.
Cultural differences are the most common factor that makes advertising standardization
less successful. This makes what is seen as right in one country can be seen as very wrong in
another. One that is also often debated is the impact of brands on advertising standardization.
Is it better to use global, or regional or national or even private brands? Many companies are
successful with global brands, but many are successful with regional brands, many are
successful with national brands in each of their markets, and many are successful with
private brands for producers who have no brands of their own.
The most decisive factor in the success of advertising standardization is the availability
of media. The development of technology and business today makes any media can reach all
corners of the world. This makes one of the successes of online media is advertising support
and vice versa.
The type of product determines the success of advertising standardization. Industrial
and luxury products are usually viewed the same anywhere in the world. Therefore,
advertising for these products tends to use a standardization approach.
Environmental factors determine the success of advertising standardization.
Sociocultural factors are the factors that most hinder the advertising standardization strategy.
The next factor is legal. The laws that determine what is allowed and what is not in
advertising are quite different in each country. Therefore, legal factors are one of the factors
that tend to hinder advertising standardization strategies.
PERSONAL SELLING:
Personal selling is one of the most important promotional mixes. When compared to
advertising, the performance comparison depends on cost, available funds, media availability,
and especially the type of product. Industrial products especially in the form of machines or
factories tend to use personal selling. Consumer products also commonly use personal
selling, especially in foreign markets, because it is more effective in that environment.
Personal selling has been quite successful in implementing standardization strategies.
The organization, the way of working, the scope of duties of the salesperson do not differ in
any country in the world. The implementation of personal selling may need to adjust to
cultural and legal factors in each country.
SALES PROMOTION:
Sales promotion provides sales assistance to the marketing function, and includes
activities such as point-of-purchase displays, contests, exhibitions, coupons, cashbacks, gifts
or purchase bonuses, and so on. Standardizing sales promotion is not difficult, as it has been
proven to work in any country. Sociocultural and economic factors are often seen as
hindering the standardization of sales promotion. A contest that is seen as attractive in one
country may be seen as demeaning to participants in another. The gift that accompanies the
purchase of a product must be valuable enough for sales promotion to successfully support
the marketing of that product. This is often interpreted differently in societies with different
economic conditions.
PUBLIC RELATIONS
Public relations is a company's communication and relationship with the wider
community, including the government of a country. There is an opinion that public relations
is the marketing of the company. Promotion is marketing the product, but public relations is
marketing the company that owns the product. A standardization strategy to market a
company is not difficult, because the concept is relatively the same. Factors that may hinder
standardization are sociocultural and legal factors. Successful public relations should be
proactive, but in many countries there are still many institutions or companies that think that
public relations is only reactive. Laws both in their formulation and implementation differ
from country to country, therefore public relations also face possible obstacles in
standardizing this promotional mix due to legal factors.
PRACTICE QUESTIONS:
1.
Make a comparison between standardization strategy, adaptation strategy, following the
country of origin strategy, or transnational strategy.
2.
How to overcome legal factors that hinder standardization?
3.
What are the sociocultural and economic barriers to standardization strategies?
4.
Climate factors can hinder standardization strategies. But can climate factors also be an
advantage to support standardization strategies? Give us your thoughts.
5.
According to your analysis, why can international pricing be a barrier to price
standardization strategy?
6.
Do you think that distribution standardization strategies are easier to implement in developed
countries than developing countries? Give your reasons.
7.
In the era of globalization, is public relations important to support promotional strategies?
Include your reasons.
INTERNATIONAL HUMAN RESOURCE MANAGEMENT
LEARNING OBJECTIVES.
1.
Discuss creating a corporate "global mindset"
2.
Explain the compatibility of international corporate strategy and HR management
3.
Compare international company executives from the company's home country, country
of business, and other countries outside the home country and country of business.
4.
Describe the role, challenges and opportunities of an expatriate position
5.
Discuss the importance of following an expat executive couple
6.
Understand the difficulty of finding qualified international corporate executives and the
importance of language
7.
Explain the complexities of determining compensation for expatriate executives
INTRODUCTION:
The effectiveness of an organization is largely determined by its human resources and
how they are managed. The effective use of human resources in a company is largely
determined by the strategic policies of the company's leadership. The policy is primarily
about how to turn human resources into human capital. The day-to-day activities of the
human resources themselves are the responsibility of the management joint responsibility
between operational management and personnel management.
Operations management must integrate human, financial, and physical resources into an
efficient system. Formulation of policies and procedures for: 1. estimation of manpower
requirements, 2. recruitment and selection, 3. training and development, 4. motivation, 5.
compensation, 6. discipline, 7. termination of employment are the responsibility of the
personnel manager, in cooperation with managers of other functions. Human resources
required for both business activities domestic and business international business activities,
companies require both management and executive employees. Obtaining executive
employees for international business is generally not a problem, because practically all
countries in the world issue regulations that executive employees can only be obtained from
residents in the country. This can be a problem if the quality of the executive employees in
the country is not qualified in terms of skills, personality and especially work ethic. However,
these conditions should have been taken into account when the company formulated its entry
strategy into the country.
The.
The problem is acquiring management employees for international business activities.
These positions require many more different skills than those required for domestic business
management alone. Although difficult, management employees for international business
activities can be obtained or trained. They can come from (1). the company's home country,
(2) the country of business, (3) other countries outside the country of origin and the country
of business.
Strategies for competing in international markets are pre-formulated, which are decided
based on the need for global integration and the need to suit local market needs. The
competition strategy is a choice of home country replication strategy, multidomestic strategy,
global strategy and transnational strategy. Based on the choice of competitive strategy, the
management of the international business human resource function for management
employees is a choice of using an ethnocentric, polycentric, regiocentric or geocentric
approach. Furthermore, in accordance with the approach used, the management employees
used by the company can be classified into three categories: (1) home-country nationals, (2)
host-country nationals, (3) third-country nationals.
RECRUITMENT AND SELECTION:
The process of recruitment and selection of employees, commonly called staffing
activities must be carried out in accordance with the choice of ethnocentric, or polycentric, or
regiocentric or geocentric international human resource management approach.
ETHNOCENTRIC STAFFING POLICY:
Companies whose competitive strategy opts for a globally integrated strategy without
taking into account local needs, i.e. a home country replication strategy will use an
ethnocentric staffing approach. With this approach, all practical decisions are made at
headquarters, and all key management and engineering employees in the country of origin
businesses use home-country nationals.
The disadvantage of this approach is that the manager from the home country is not
familiar with the culture and language of the country of business. However, over time this
can usually be overcome by learning and mingling in the country. Another drawback is the
lack of familiarity with the accounting procedures and laws of the host country. This can
usually be overcome by seeking assistance from consultants who specialize in these areas. A
disadvantage that is a consequence of choosing this approach is the relatively high cost of
total salaries and benefits for the expatriates.
The advantage of this approach is that it is a means of training for their career
development. Many companies nowadays, especially those doing international business,
require that the top management and even the middle management must have worked and
lived abroad. Another advantage is easier communication with the center, and can often be a
representative of the head office in the country.
POLYCENTRIC STAFFING POLICY:
A company that decides to use a multidomestic strategy in its international business
means that in competition the company feels a strong need for adaptation to local conditions,
and not for global integration. The approach in human resource management used is a
polycentric approach, i.e. all key management and technical employees in the country where
the business is located using host-country nationals.
The advantage of this approach is that host-country nationals will usually not face
problems with the culture and language in their own country. In addition, the costs for
salaries and benefits are generally lower than if home-country nationals or third-country
nationals were brought in. Communities are also generally more accepting of foreign
companies, as the leaders are local. Local governments are also usually very supportive of
foreign companies placing local people in management or engineering positions, as this
means the development of the management and engineering skills of their citizens.
Relationships with the government can be strengthened, making it easier for the company to
operate in the country.
The disadvantages of this polycntric approach are mainly that locals are often
unfamiliar with the culture or language of the home country, making it difficult to
communicate and coordinate with headquarters. In addition, there is the possibility of
conflicting loyalties from local leaders when dealing with issues that involve conflicts
between the interests of the company and the interests of their country. Another drawback is
the possibility that there are no locals qualified to serve as leaders or technical experts. Even
if they are available or have been trained to meet all the requirements of a leader, they are
likely to be "hijacked" by another company.
REGIOCENTRIC STAFFING POLICY:
A company with a regional strategy to compete means that there is a lot of pressure for
global integration and little to adjust to local conditions. With this approach, management and
technical employees will be selected from host-country nationals and third-country nationals.
The drawback of this approach is that if many third-country nationals are used, it is
important to realize that language is only one component of culture, so similar language or
language skills do not necessarily mean similar culture. Experience of working in a foreign
country matters more. Those with experience in acclimatization are often much more
receptive to a job transfer to another country. Another drawback is that the government of the
local country generally remains reluctant to accept those who are not from their own country,
even if they are from a neighboring country.
The advantages of this approach lie somewhere between the host-country nationals
approach and the home-country nationals approach. This is both in culture and in cost.
GEOCENTRIC STAFFING POLICY:
Companies with a transnational strategy driven by the need for global integration as
well as local adaptation will use a geocentric staffing policy approach. The company will
look for the best person for each position regardless of country of origin, thereby gaining the
advantages of each staffing policy. With a geocentric staffing policy, human resource
management strategies tend to be consistent across subsidiaries, taking the best of any
available means among the company's worldwide network of operations. Not based on
headquarters practices adapted to local.
TRAINING AND DEVELOPMENT:
Training and development includes efforts to facilitate the acquisition of job-related
knowledge, behaviors, and skills, Training and development of managers and key employees
of international companies varies depending on, among other things, the country of origin,
country of business, or third country.
HOME-COUNTRY NATIONALS:
Employees who will be assigned to target market countries usually need to be trained
and developed first. Typically, not fresh graduates, or those who have just been hired at the
parent company, but employees who have been working at the head office and have been
recognized as having potential for career advancement are selected.
Training is more on language skills and introduction and understanding of the culture of
the target country, often the employee is sent to the target country to gain first-hand
experience of life in the country. For employees who are married, it is important to evaluate
whether the family can adjust to life in the country and fully accept the employee living in the
country with them.
HOST-COUNTRY NATIONALS:
The training and development of those who will be deployed to their home countries is
different from that of nationals. The desired result is that they recognize the history of the
company, understand and appreciate the policies, work procedures and culture of the
company. In addition, they also understand the specialized knowledge of their field of work
in the target market country.
Companies from developed countries can usually obtain nationals of the country of
business who are college graduates from universities in those developed countries.
Recruitment may take place in the country of university. Training and development is usually
conducted in the country of origin, and mainly consists of indoctrination on company
policies, procedures and culture, as well as specific knowledge and skills pertinent to the job.
Nationals of the country of establishment may also be recruited in the country of
establishment. Training may be conducted in the country of business as well as several visits
to the head office. The visit to the head office is to get to know the company and its facilities,
and the employees who will be working with them at the head office.
THIRD-COUNTRY NATIONALS:
Employees who are neither from the home country nor from the country of business
often benefit the company. They may be willing to accept lower salaries and benefits than
home country employees, and may also come from a culture that is relatively similar to that
of the country of business. In addition, they may have worked in the host country before
target market, and have knowledge of the business practices and culture of the people there. It
is also possible that they already have a valid work permit, making it less of a hassle to apply
for one.
Problems may arise from the government of the business. They may accept the
argument of using home-country nationals, since the investment comes from there. There is
no acceptable reason for the government there not to use home-country, or host-country
managers, but instead use third-country employees. In addition, it is difficult to generalize the
advantages of using third-country nationals from the characteristics of these employees,
because each person can be very different. Each person will be different depending on their
country of origin, on the culture of the country, work experience and organizational culture in
previous international companies.
EXPATRIATES:
An expatriate is someone who works in a managerial or skilled worker capacity and
lives outside their own country. They can be from the home country of the company they
work for, or from a country that is neither the home country nor the country of business.
Those who work as factory workers, plantation workers, construction workers, domestic
helpers and so on are generally not known as expatriates.
The costs incurred in using expatriates are substantial relative to using employees from
the country of business. This is not counting the costs lost due to expatriate performance
failures caused by the expatriates due to non-completion of the expatriate's period of
employment, due to being "hijacked" by another company, due to failure to adapt to the local
culture, expatriates' failure to apply their skills, and so on.
The problems faced by being an expatriate are not easy, including the so-called culture
shock, which occurs because a person moves from an environment with a culture he or she is
used to, to a place with a culture that is often very different. This makes the expatriate
experience "out of sight, out of mind". Expatriates experience emotional and physical
discomfort, as well as feelings of disorientation and confusion that can easily disrupt their
lives and work.
Cultural shock is also often experienced by family members, wives or husbands and
their children. They face their own different environment and it can also disrupt their lives
and activities. Often the biggest problems have to be faced by family members. Expatriates
assigned to a country receive residence and work permits, but not their wives or husbands.
This leaves the wife or husband unable to work and use their skills. In other words, they are
unemployed before retirement. The ones who feel the brunt of life as an expatriate are their
children, because they are still unstable and still searching for their identity, they have to
experience culture shock as well which may be very hard to feel.
If the expatriate then returns to his or her own country after a period of time on
assignment, he or she will face what is called reverse cultural shock, only this time it is more
difficult to adjust to life and activities in their own country. Usually reverse cultural shock is
much more difficult to deal with than cultural shock, because if you are disoriented and
confused in another country, you may still be able to escape by returning to your country. If
you are disoriented and confused in your own country, what should you do?
COMPENSATION:
Formulating a compensation plan that is fair and consistent but does not
overcompensate expatriates is a complex undertaking because compensation programs cannot
be generalized. Each person, each job, each country is different. If an international company
cannot provide compensation that it deems fair and adequate, it will find it difficult to attract
qualified expatriates in the numbers it needs. This inability will make it difficult for the
company to prepare its future leaders, who are expected to face an increasingly complex
international business environment.
The method traditionally used is to pay a base salary, and then add various allowances
and bonuses for overseas duties. Most overseas assignments will result in very high
additional costs when compared to all the costs for those serving in the same role
domestically.
For example, Table 12-1 states the components of the total cost incurred by a company
to assign a manager with his family (wife and 2 teenage children) to another country.
SALARY:
The base salary is usually set equal to the salary that is received for the same position in the
home country. However, base salaries vary from country to country because the cost of living
is also different in different countries. Therefore, the practice of base salary being set equal to
the salary received in the home country would be reasonable in the case of assignments to
countries with a lower cost of living than in the home country. When the cost of living in the
country of assignment is higher than the cost of living in the home country, it is common to
set the base salary equal to the base salary of the manager with the same position in the
country of assignment. In Japan there is a regulation that expatriates should receive a base
salary 10% higher than the base salary normally received by Japanese managers in the same
position. The Japanese government's regulation aims to reduce the desire of international
companies to bring in expatriates from home countries, and instead use Japanese managers as
much as possible.
HELP:
Allowances are payments to compensate expatriates for the additional costs required to
live in the country of assignment with the same comfort as if they were living in their home
country. Such allowances include location allowance, cost of living allowance, tax allowance,
housing allowance, vehicle allowance, leave allowance, child education allowance, allowance
for moving expenses from home country to country of assignment. Allowances location is
concerned with the compensation given to expatriates for the inconvenience of having to live
and work in a country that is not the same as their home country. Such differences will range
from the climate, to issues of safety, comfort, convenience, and so on. The cost of living
allowance is intended to enable expatriates to live in the same conditions as in their home
country, such as food, clothing, and so on. In the country of assignment, the food and drinks
that the expatriate is used to eating in his country may cost more than the price in his own
country. Housing allowances are meant to allow expatriates to live in a home with at least the
same comfort as in their own country. Tax allowances are meant to help expatriates who may
have to pay higher taxes than they would in their own country. For expatriates with children,
school fees in the country of assignment are usually higher than in the home country. In the
country of assignment the expatriate's children have to be sent to expensive specialized
schools, whereas in the home country they can be sent to public schools where they do not
have to pay. Vehicle allowances are meant to ensure expats can travel for work or other
purposes with ease. Public transportation facilities in the country of assignment may not be as
good as in the home country, and the convenience of driving your own car is very different.
To get to the country of assignment and later when returning home, expatriates need help
with moving costs.
BONUS:
A bonus, also known as a premium, is paid by the company as a reward for working in
an uncomfortable environment (because it is in a different country than your home country)
and performing up to expectations. Bonuses can also be compensation for the expatriate
fulfilling the time period of his/her assignment. This bonus is to prevent the expatriate from
leaving the assignment even though the assignment period has not been completed. Leave is a
bonus if at any time the expatriate performs his duties impeccably, so that he gets leave paid
by the company to return to his home country, for example for three months. The company
has a special purpose in this case, which is to keep expatriates from forgetting their home
country and culture.
INTERNATIONAL STATUS:
Many employees recruited in the company's home country receive international status,
meaning that they will be compensated the same as expatriates from their home country. This
means that even if the employee is from a third-country or even a host-country, as long as he
or she has international status, the compensation is equal to that of an expatriate from the
company's home country.
PRACTICE QUESTIONS:
1.
Why is there a classification of human resources into 3 categories? Does each category have
its own role? Explain your opinion.
2.
Explain the advantages and disadvantages of an ethnocentric staffing policy.
3.
Provide a comparison between regioncentric staffing policy
and geocentric staffing policy
4.
Do you think that employee training and development should be universal training (no
differentiation from country of origin) or vice versa? Explain your opinion.
5.
Do you think there are other advantages for the company of hiring an expatriate apart from
the work they do? Give us your analysis
6.
Does compensation play an important role in the fulfillment of a company's human
resources? explain.
7.
What do you know about the international status of employees recruited by the home
country?
